Doueihi v Construction Technologies Australia Pty Ltd

[2016] NSWCA 105

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Doueihi v Construction Technologies Australia Pty Ltd [2016] NSWCA 105

Hearing dates:

14 September 2015

Decision date:

12 May 2016

Before:

Beazley P at [1];
Gleeson JA at [2];
Leeming JA at [229]

Decision:

(1)   Appeal dismissed.
(2)   Appellants to pay the respondent’s costs.

Catchwords:

ESTOPPEL - equitable estoppel - proprietary estoppel - estoppel by encouragement - when available – where director of respondent company initiated discussions with appellants regarding acquisition of land by appellant-co-owners and lease of portion of acquired land to respondent company - where appellant-co-owners allowed director of respondent company to oversee design and construction of purpose-built building to accommodate respondent’s manufacturing plant on the land and knew respondent installed expensive manufacturing plant and equipment which would be costly to dismantle and remove – where director of respondent had close familial connection to three of four co-owners of land – where appellants’ family practice was not to document leases - where parties agreed rent, term, option to renew and area to be occupied – respondent’s right of occupation not documented – whether respondent assumed that an interest would be granted – challenge to primary judge’s factual finding relating to the assumption made by the respondent

 

ESTOPPEL - equitable estoppel - proprietary estoppel - estoppel by encouragement - when available – nature of assumption required to found a proprietary estoppel – DHJPM v Blackthorn distinguished – whether expectation of ‘a particular legal relationship’ (and that other party is not free to withdraw from negotiations) is required if parties had no intention to enter into a formal lease – distinction between assumption that an interest would be granted in land and assumption as to a particular legal relationship

 

ESTOPPEL - equitable estoppel - proprietary estoppel - estoppel by encouragement - when available – consideration of categories of proprietary estoppel and effect of context – whether dichotomy between arms-length/commercial cases and domestic/family cases – reasonableness and certainty of respondent’s assumption – adequacy of appellants’ assurances – where close connection and no contemplation by parties of a formal contract – whether mere hope or confident expectation that the appellants would do the proper thing – where finding that respondent’s belief was as to a matter of likely fact – whether respondent could reasonably rely on honour of family to uphold what had been agreed

  ESTOPPEL - equitable estoppel - proprietary estoppel - estoppel by encouragement - when available – degree to which agreement lacked important commercial terms – whether respondent’s reliance on the assumption was reasonable and departure would be unconscionable

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW), r 51.40

Cases Cited:

Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) [1987] 1 AC 114
Arfaras v Vosnakis [2016] NSWCA 65
Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1989) 16 NSWLR 582
Australian Crime Commission v Gray [2003] NSWCA 318
Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; 1 WLR 1752
Crabb v Arun District Council [1976] 1 Ch 179
Dann v Spurrier (1802) 7 Ves 231
Dillwyn v Llewelyn (1862) 4 De GF & J 517; 45 ER 1284
DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; 285 ALR 311; 83 NSWLR 728
EK Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172
Evans v Evans [2011] NSWCA 92
Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712
Galaxidis v Galaxidis [2004] NSWCA 111
Franklins Pty Ltd v Metcash Trading [2009] NSWCA 407; 76 NSWLR 603
Giumelli v Giumelli [1999] HCA 10, 196 CLR 101
Holiday Inns Inc v Broadhead (1974) 232 EG 951
Inwards v Baker [1965] 2 QB 29
Jennings v Rice [2003] 1 P & CR 8; [2002] EWCA Civ 159
Legione v Hateley [1983] HCA 11; 152 CLR 406
Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475
Moratic Pty Ltd v Gordon [2007] NSWSC 5
Pacific National (ACT) Ltd v Queensland Rail [2006] FCA 91
Plimmer v Mayor, Councillors and Citizens of the City of Wellington (1884) 9 App Cas 699
Ramsden v Dyson (1866) LR1HL 129
Riches v Hogben [1985] 2 Qd R 292
Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603
S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637
Sidhu v Van Dyke [2014] HCA 19; 251 CLR 505
Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466
Sullivan v Sullivan [2006] NSWCA 312
Tadrous v Tadrous [2012] NSWCA 16
Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133
The Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394
Thorner v Major [2009] UKHL 18; 1 WLR 776
Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; 164 CLR 387
Wright v Hamilton Island Enterprises Ltd [2003] Q Conv R 54-888

Texts Cited:

KR Handley, Estoppel by Conduct and Election, Sweet & Maxwell 2006
J D Heydon, M J Leeming, P G Turner, Meagher, Gummow & Lehane’s Equity Doctrines & Remedies (5th ed 2015 LexisNexis Butterworths)
B McFarlane, The Law of Proprietary Estoppel, Oxford University Press, 2014
AJ Silink, “Equitable Estoppel in ‘Subject to Contract’ Negotiations” (2011) 5 Journal of Equity 252
Young, Croft and Smith, On Equity (2009, Lawbook Co)

Category:

Principal judgment

Parties:

Edward Doueihi (First Appellant)
Katrina Scott (Second Appellant)
Maria Vatselias (Third Appellant)
Nicole Hogan (Fourth Appellant)
Marble Plus Pty Ltd (Fifth Appellant)
Construction Technologies Australia Pty Ltd (Respondent)

Representation:

Counsel:
W G Muddle SC and I J Stanley (Appellants)
I Jackman SC and K Rees SC (Respondent)

  Solicitors:
Norton Rose Fulbright Australia (Appellants)
FD Commercial Lawyers (Respondent)

File Number(s):

2014/371363

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity Division

Citation:

Construction Technologies Australia Pty Ltd v Doueihi & 4 Ors [2014] NSWSC 1717

Date of Decision:

18 December 2014

Before:

White J

File Number(s):

2012/367996

HEADNOTE

[This headnote is not to be read as part of the judgment]

In 2008, the first – fourth appellants (Mr Edward Doueihi, Ms Katrina Scott, Mrs Maria Vatselias and Ms Nicole Hogan) purchased a property at Seven Hills to accommodate Marble Plus Pty Ltd, the fifth defendant, and Construction Technologies Australia Pty Ltd (“CTA”,the respondent, then known as MCB Products Pty Ltd). Marble Plus was owned by the first-fourth appellants and/or their family companies. Mr Hogan (the director and major shareholder of the respondent), was married to Ms Nicole Hogan, the daughter of Mrs Vatselias and sister of Ms Scott. He was the driving force behind this purchase and it was proposed that a purpose-built building would be constructed for the occupancy of Marble Plus and CTA. The primary judge found that the co-owners knew that the proposed premises were designed and built to accommodate CTA’s adhesive manufacturing plant, that it was expensive to install, and that it would be expensive and disruptive to the respondent’s business to remove. CTA spent nearly $1 million installing its plant and equipment after it took possession of its area of the premises (of which it had exclusive occupation) in late June 2010, paying rent from July 2010 onwards.

The primary judge’s findings relating to the plans and construction of the building relevantly included that: Mr Hogan told Mr Doueihi CTA would need a five-year lease with a five-year option to renew to justify its expenditure; Mr Doueihi, negotiating on the other co-owners’ behalf, said that sounded fair; the other co-owners knew from the scale of expenditure that CTA was expecting a long-term occupation; and that Mr Hogan assumed, consistently with the co-owners’ family’s practice of not making formal tenancy agreements, that CTA did not need to make a formal agreement for lease to have a right to occupancy for the agreed rent of $12,000 per month on a five-plus-five-year term.

In July 2011, Mr Troy Hogan and Ms Nicole Hogan separated, following which CTA attempted to formalise its lease. In June 2012, Marble Plus offered CTA a short-term lease at a 40 per cent increase in rent. On 18 October 2012, the co-owners’ solicitors gave CTA a notice to quit. On 26 November, CTA commenced proceedings, claiming it had a binding agreement for lease, or the benefit of a conventional or equitable estoppel against the co-owners with, or without, Marble Plus denying the equitable lease. The primary judge rejected the contract and conventional estoppel claims but found there was a proprietary estoppel by encouragement. His Honour made a declaration that CTA was entitled to enforce an equity arising by estoppel and ordered the parties to execute a lease. The co-owners and Marble Plus appealed.

On appeal, the issues before the Court were:

whether the primary judge’s factual finding that CTA assumed that an interest in the premises would be granted to CTA was in error;

whether DHJPM v Blackthorn compelled the rejection of the claim of proprietary estoppel by encouragement; and if not, whether the primary judge erred, either in concluding that Tadrous v Tadrous fragmented equitable principles into those applicable in a commercial context and those applicable in a domestic/family context, or in concluding that the present case was to be characterised as a domestic/family case;

whether Mr Hogan’s – and through him, CTA’s – expectation as to what the appellants would permit as a matter of likely fact was insufficient to support a proprietary estoppel;

whether Mr Hogan’s reliance on the honour of the family to respect what he had agreed with Mr Doueihi was reasonable, and whether CTA made an assumption as to an interest in land induced or encouraged by the appellants, and if it did, whether reliance on the assumption was reasonable and whether it was unconscionable for the appellants to depart from that assumption; and

whether the finding that the appellants were bound by a proprietary estoppel was justified in light of the other findings made by the primary judge, including the findings concerning the absence of Mr Doueihi’s authority to bind the co-owners, the absence of a concluded agreement between CTA and the co-owners or Marble Plus, and CTA’s belief as to whether the appellants were bound to give CTA a lease.

Held by Gleeson JA (Beazley P and Leeming JA agreeing at [1] and [229], respectively), dismissing the appeal with costs:

In relation to (1)

The rejection of parts of Mr Hogan’s evidence regarding his belief in 2009 that he had an agreement for lease and alleged conversations in May 2010 with the other co-owners is not inconsistent with the primary judge’s finding that Mr Hogan assumed that, consistently with the family’s practice not to formalise tenancy arrangements, CTA would be allowed to remain on the premises at the rent which Mr Hogan had agreed with Mr Doueihi for a long term, namely five years from the time the premises were ready for occupation by CTA, with an option for a further five years.

Mr Hogan’s assumption that CTA would be granted an interest in the premises is not inconsistent with his belief at the time of his later statement in December 2011 (when his relationship with Ms Hogan had fractured) that the co-owners could ask CTA to leave the premises. [98]-[99]

In relation to (2)

The assurance given to Mr Hogan, and through him, CTA, created or encouraged an expectation or assumption that CTA would be granted an interest in the premises in circumstances where there was a consensus as to the essential terms of CTA’s occupancy of the premises and the parties had no expectation that a formal lease would be entered into. [139] – [152]

Arfaras v Vosnakis [2016] NSWCA 65; Sidu v Van Dyke [2014] HCA 19; 251 CLR 505; Tadrous v Tadrous [2012] NSWCA 16; DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; 285 ALR 311; 83 NSWLR 728 (distinguished); Thorner v Major [2009] UKHL 18; 1 WLR 776; Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; 1 WLR 1752; Jennings v Rice [2003] 1 P & CR 8; [2002] EWCA Civ 159; Giumelli v Giumelli [1999] HCA 10; 196 CLR 1; The Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394; Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; 164 CLR 387; Ramsden v Dyson (1886) LR1HL 129; Dillwyn v Llewelyn (1862) 4 De GF & J 517; 45 ER 1284

The circumstances in which a proprietary estoppel will arise include those in which assurances were given which created or encouraged an assumption that ‘a particular legal relationship’ would be established, or ‘an interest’ would be granted. The fact that CTA did not assume that ‘a particular legal relationship’ would exist was not determinative of its proprietary estoppel claim. [154]-[170]

Sidhu v Van Dyke [2014] HCA 19; 251 CLR 505; DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; 285 ALR 311; 83 NSWLR 728 (distinguished); Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; 1 WLR 1752 (distinguished); Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475; S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637; Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; 164 CLR 387; Austotel Pty Ltd v Franklin Self-Serve Pty Ltd (1989) 16 NSWLR 582; Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) [1987] 1 AC 114; Legione v Hateley [1983] HCA 11; 152 CLR 406; Ramsden v Dyson (1886) LR1HL 129

The dichotomy between arm’s length/commercial cases and domestic/family cases is not to be seen as fragmenting equitable principles. DHJPM v Blackthorn and Tadrous v Tadrous do not suggest that such dichotomy is universal, nor that it is a finite framework. [175]

Tadrous v Tadrous [2012] NSWCA 16; DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; 285 ALR 311; 83 NSWLR 728; Thorner v Major [2009] UKHL 18; 1 WLR 776; Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; 1 WLR 1752

The primary judge did not err in giving greater weight to the tenancy’s family context than its commercial nature when assessing the adequacy of the assurance given to CTA and the reasonableness of CTA’s reliance upon the assumption that it would be granted an interest where the family’s practice was not to enter into formal leases. [184]-[185]

Tadrous v Tadrous [2012] NSWCA 16; DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; 285 ALR 311; Thorner v Major [2009] UKHL 18; 1 WLR 776; Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; 1 WLR 1752

In relation to (3)

The primary judge’s reasons are not to be taken as suggesting that an encouraged “hope”, in the sense of that harboured by a tenant who took his chances, is sufficient to create an equity. Here, the primary judge’s finding as to what the appellants would permit as a matter of “likely fact” emphasised that Mr Hogan made an assumption about what the appellants would do, not an assumption that ‘a particular legal relationship’ would exist between CTA and the appellants. There was no error in his Honour’s finding that the assumption made by Mr Hogan, and through him, CTA, was that an interest in the premises would be granted to CTA. [186]-[201]

DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; 285 ALR 311; Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; 1 WLR 1752; Galaxidis v Galaxidis [2004] NSWCA 111; Evans v Evans [2011] NSWCA 92; Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712; Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394; Legione v Hateley [1983] HCA 11; 152 CLR 406; Ramsden v Dyson (1886) LR1HL 129

In relation to (4)

No error has been demonstrated in the primary judge’s assessment of the significance of the absence of agreement on all commercial terms. An estoppel can be established notwithstanding that a promise is lacking in detail; it is always a matter of degree. The parties had agreed on rent, term, option to renew and area to be occupied. Given that Mr Hogan did not expect to negotiate and settle the terms of a lease and formalise the relationship by entering into a contract, it was not unreasonable for Mr Hogan to rely upon the honour of the family to respect what he had agreed with Mr Doueihi. [202]-[217]

DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; 285 ALR 311 (distinguished); Pacific National (ACT) Ltd v Queensland Rail [2006] FCA 91; Australian Crime Commission v Gray [2003] NSWCA 31;

Wright v Hamilton Island Enterprises Ltd [2003] Q Conv R 54-888; Giumelli v Giumelli [1999] HCA 10, 196 CLR 101; Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712; Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475; Ausotel Pty Ltd v Franklin Self-Serve Pty Ltd (1989) 16 NSWLR 582 (distinguished); Ramsden v Dyson (1886) LR1HL 129 (distinguished)

In relation to (5)

No error has been shown in the primary judge’s finding that all of the appellants were bound by a proprietary estoppel requiring them to execute a written lease of the premises in favour of CTA on the terms referred to. Authority to negotiate and, in the process, make representations, is distinct from authority to bind in contract. Although the co-owners did not give Mr Doueihi authority to bind them by entering a contract, this is not inconsistent with their being fixed with Mr Doueihi’s knowledge as to, and acquiescence in, Mr Hogan’s assumption that an interest would be granted to CTA. [218]-[227]

DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; 285 ALR 311

Judgment

1. BEAZLEY P: I have had the advantage of reading in draft the reasons of Gleeson JA. I agree with his Honour’s reasons and proposed orders.

2. GLEESON JA: This appeal is concerned with a claim of proprietary estoppel relating to a property at Prime Drive, Seven Hills (the premises), owned by Mr Edward Doueihi, Ms Katrina Scott, Mrs Maria Vatselias and Ms Nicole Hogan, the first to fourth appellants (the co-owners). The fifth appellant, Marble Plus Pty Ltd (Marble Plus), is a company owned by the co-owners and/or their family companies. Mr Troy Hogan, a director and the major shareholder of the respondent, Construction Technologies Australia Pty Ltd (CTA), was related by marriage to three of the co-owners.

3. CTA brought proceedings in the Supreme Court, claiming that there was a binding agreement for lease between CTA and either the co-owners or Marble Plus in respect of a designated area of the premises for five years from 1 July 2010, at a rent of $12,000 per month plus GST, with an option for renewal for a further five years. Alternatively, CTA claimed that it had the benefit of either a conventional estoppel or an equitable estoppel against the co-owners, or the co-owners and Marble Plus, from denying the existence of such an equitable lease, or sublease (from Marble Plus).

4. The primary judge (White J) rejected CTA’s contract claim and the conventional estoppel claim, and upheld the claim to an equitable estoppel, which he characterised as a proprietary estoppel by encouragement: Construction Technologies Australia Pty Ltd v Doueihi [2014] NSWCA 1717. To satisfy that equity, his Honour made a declaration and orders in the following terms:

The Court DECLARES:

4.   The first to fourth defendants are the subject of an equitable estoppel to the effect that a lease exists between CTA and the first to fourth defendants on the following terms:

a.   A term of five years from 18 May 2010 with an option for renewal for a further five years from 18 February 2015.

b.   CTA has the right of exclusive possession of the CTA premises.

c.   CTA has a non-exclusive right to use the current shared facilities.

d.   The rent for the first five-year term is $12,000 (plus GST) per month inclusive of outgoings.

e.   CTA is to pay for electricity, consumables and services (including coffee machine rental, coffee beans, tea bags, bottled water, toilet paper, light bulbs and installation, lawn maintenance, general maintenance, lift maintenance, fire protection and monitoring, gate repairs, water, handy soap, security monitor, safe site security, chocolate, instant coffee for upstairs, cleaners sugar, disposable cups, alcohol and milk) to the extent of its use, being expenses of the type which CTA has paid since 18 May 2010.

f.   If the option for renewal is exercised, the rent for the renewed lease will be:

i.   the then market rent as agreed or determined by valuation; and

ii.   be subject to annual increases in accordance with the Consumer Price Index.

g.   At the determination of the lease and any further term pursuant to the exercise of the option:

i.   CTA has the right to remove its tenant fixtures; and

ii.   CTA is obliged to make good the CTA premises.

The Court ORDERS:

5.   The first to fourth defendants to execute a written lease containing:

a.   the terms in paragraph [4] (sic), and

b.   Other usual lese covenants for a lease of factory premises.

6.   In the event that CTA and the first to fourth defendants cannot agree on the terms of the written lease referred to in order 5(b), then:

a.   The Court will appoint an expert under Part 31 rule 46 of the Uniform Civil Procedure Act 2005 (NSW) to determine the usual lease covenants for the written lease; and

b.   The parties have liberty to apply on 3 days’ notice for the appointment of the expert.

5. The co-owners and Marble Plus have appealed. Essentially, the appeal raises two issues.

6. The first and main issue concerns the quality or nature of the assumption required to found an equitable proprietary estoppel. The appellants assert that the primary judge made errors of law in recognising an equitable proprietary estoppel in circumstances where CTA did not assume that ‘a particular legal relationship’ would exist between the parties, and instead assumed that an interest would be granted, namely exclusive possession of its designated area of the premises and the right to use the shared areas for five years with an option to extend that period for a further five years if it paid the rent that had been agreed.

7. Related to the main issue (although strictly an anterior question) is a factual challenge to his Honour’s finding that CTA assumed that an interest in the premises would be granted. There is also a challenge to the adequacy of the assurances given to Mr Hogan, and through him, CTA. At issue is whether CTA’s assumption that an interest would be granted to CTA, was no more than a “hope” or a “confident expectation” that this is what would likely happen.

8. The second issue concerns the reasonableness of the assumption, as found by his Honour, and reliance on it by CTA, and whether it was unconscionable for the appellants to depart from that assumption. At issue is whether the degree of completeness of the bargain between CTA and the appellants, particularly the absence of agreement as to rent over the entire term, and as to all commercial terms, rendered unreasonable any reliance by CTA on an assumption that an interest in the premises would be granted to it.

Relevant facts

9. The basic facts are not in dispute and are set out at length in his Honour’s detailed reasons. The following outline includes reference to the salient findings made by his Honour with respect to matters in dispute at trial.

The parties

10. In November 1987, the first appellant, Mr Doueihi, and his brother established the fifth appellant, Marble Plus, as an importer and wholesaler of tiles and natural stone products. The second appellant, Ms Katrina Scott, and the fourth appellant, Ms Nicole Hogan, are the daughters of the third appellant, Mrs Maria Vatselias. In October 1994, members of the Vatselias family acquired the majority of the shares in Marble Plus. Following the death of Mr Vatselias in February 2005, the shareholders in Marble Plus were relevantly as follows: Mr Doueihi and his wife and family company owned approximately 32.6 percent of the shares; Mrs Vatselias, or companies associated with her, owned approximately 38.9 percent of the shares; and Ms Scott and Ms Hogan each owned approximately 14.65 percent of the shares.

11. The respondent, CTA, was incorporated in 2007 and manufactured tile adhesives, grouts and waterproofing membrane products. In September 2008, Mr Troy Hogan invested more than $1 million to acquire a majority shareholding in CTA. Mr Hogan was then married to the fourth appellant, Ms Nicole Hogan. The minority shareholders of CTA are unrelated to the appellants.

12. Mr Hogan had commenced working for Architectural and Structural Adhesives Pty Ltd (ASA) in 1994, which was then owned by the Vatselias family and manufactured the same products as CTA did. One of ASA’s customers was Marble Plus. Mr Hogan became managing director of ASA in 1998 after his marriage to Nicole Hogan. In June 2000, Bostik Australia Pty Ltd (Bostik) acquired 75 percent of the shares in ASA from the Vatselias family. Mr Hogan continued to work in the business, initially in Australia and later, for Bostik, in Hong Kong.

13. After he returned to Australia in April 2008 (having ceased to be an employee of Bostik), Mr Hogan considered investing in CTA, then known as MCB Products, and acted as a consultant for it. He proposed to Mr Doueihi that they look to acquire new premises that could accommodate an expansion of Marble Plus’ business and provide Sydney premises for MCB Products. At that time, Marble Plus carried on business from a Smithfield property owned by Mr Doueihi, Mrs Vatselias, Ms Hogan and Ms Scott. Marble Plus had paid rent and outgoings to the proprietors since 2001 and there was no written lease or agreement that the lease would be for a fixed term. Prior to 2001, Marble Plus had traded from premises at Wetherill Park since 1995. Those premises were owned by Mrs Vatselias following the death of her husband in February 1995. Again there was no formal lease.

14. Mr Hogan told Mr Doueihi that MCB Products’ business would need about 1,000 square metres of space. He suggested to Mr Doueihi that a property be purchased in the same way that the Smithfield property had been bought, that is, in the name of the four individual co-owners and that there be a lease to Marble Plus.

15. By the end of August 2008, Mr Hogan and Mr Doueihi had identified the Seven Hills property as the site that they proposed be purchased. Mr Doueihi told Mrs Vatselias and her daughters that the Seven Hills property could accommodate both Marble Plus and MCB Products. They voiced no opposition to that idea.

Purchase and proposed lease of the Seven Hills property

16. The co-owners entered into a contract to purchase the Seven Hills property for $2,900,000 shortly prior to 25 September 2008. The primary judge found that Mr Hogan was the driving force behind this purchase. When seeking finance for it, Mr Hogan and Mr Doueihi told prospective lenders that it was proposed that the Seven Hills property be acquired by the four individuals who were the directors and shareholders of Marble Plus for $2,900,000 and that a purpose-built building would be constructed on the property at an estimated cost of $3,200,000 for the occupancy of Marble Plus and MCB Products. They also told prospective lenders that it was proposed that Marble Plus occupy part of the site for a rent of “say” $400,000 net per annum and that MCB Products would occupy a surplus area for a rent of $100,000 net per annum.

17. Mr Doueihi told Mrs Vatselias and her daughters about the proposed structure. None of them objected. His Honour found that Mr Doueihi and Mrs Vatselias and her daughters were sufficiently aware of the details of the proposed premises to know that they were designed and built to accommodate CTA’s adhesive manufacturing plant. The significance of this, his Honour found, was that it was obvious to the co-owners, that the manufacturing plant installed by CTA was expensive, its installation was expensive and it would be expensive and disruptive for CTA to remove it: at [21].

18. On 4 February 2009, Mr Hogan became a director of MCB Products. His company, APAC Investments Pty Ltd, acquired 64 percent of the shares of MCB Products. This further investment was made with assistance of a $500,000 loan from Mrs Vatselias.

19. Development consent for the Seven Hills property was given by the Council on 3 April 2009. There was evidence of a so-called “letter of offer” which, his Honour found, had been prepared by Mr Hogan, purportedly setting out the terms of a sublease to be granted by Marble Plus to CTA: at [24]. The letter of offer referred to a proposed lease for three plus three years at a commencing rental of $158,550 pa net (150 m2 pa net). A valuer’s report completed on 22 May 2009 expressed the view that this rental was well in excess of the market rental value for this space, which was considered to be $105,700 pa net or $100 m2 pa net. His Honour found that the stated rental was inflated in an attempt to influence the valuer to provide a favourable valuation to assist with the provision of finance: at [26].

20. There was a dispute at trial as to whether Mr Hogan gave a modified letter of offer to Mr Doueihi, which they discussed in mid-2009, changing the lease term to five years with an option of renewal for a further five years, changing the rent to $120,000 per annum and removing the requirement for a bank guarantee and lease deposit. His Honour found that no agreement for lease or sublease came into existence in mid-2009: at [31]. He did not accept Mr Hogan’s evidence that he believed in mid-2009 that he had an agreement for lease with Mr Doueihi that was enforceable and binding: at [32]–[33]. Nor was his Honour persuaded that the modified letter of offer was given by Mr Hogan to Mr Doueihi: at [36]. He accepted Mr Doueihi’s evidence that the co-owners never drew up formal leases, and that Mr Doueihi did not need, or expect to have any kind of formal lease for CTA’s occupation of the warehouse at the Seven Hills property.

21. His Honour made the following findings (at [37]) with respect to the position as at mid-2009:

I accept Mr Hogan’s evidence that he told Mr Doueihi that to justify its expenditure on the site CTA would need a lease for a five-year term with a five-year option. I accept his evidence that Mr Doueihi said words to the effect that that sounded fair to him. I do not accept Mr Hogan’s evidence that he believed from this time that CTA had a binding agreement for lease for a long period. Rather, he assumed that consistently with the family’s practice it was not necessary to make a formal agreement for lease. He expected that CTA would be allowed to remain on the site at a rent on which he and Mr Doueihi agreed for a long term, namely for five years from the time the premises were ready for occupation by CTA with an option for a further five years.

22. Construction of the factory/warehouse commenced in July 2009. Contrary to Mr Doueihi’s evidence, Mr Hogan assumed primary responsibility for supervising the construction and it was designed and built to accommodate CTA’s manufacturing plant: at [38]. The area to be occupied exclusively by CTA was defined in the plans and shown as “Area B”.

23. In September 2009, when all of the co-owners were together, Mr Hogan presented CTA’s plans for its manufacturing plant to them. Ms Hogan described this presentation “as a fait accompli, take it or leave it”. The co-owners did not object. Although Mrs Vatselias initially objected to the proposal that CTA’s silos penetrate the roof, the roof was later raised to accommodate the silos: at [41].

Installation of CTA’s plant

24. The cost of installation of CTA’s manufacturing plant and equipment was $943,000 plus GST: at [42]. CTA did not commence that installation until late 2010, after it had moved into possession of its designated area of the premises. In his communications with CTA’s equipment financier in October 2009, Mr Hogan advised that CTA had an “informal” tenancy agreement for ten years, and described himself (inaccurately) as being the owner of the building in another entity. This was an oblique reference to his wife’s 25% interest in the property: at [44]. His Honour found that this was a clear admission that, in Mr Hogan’s view, there was no existing formal tenancy agreement.

25. His Honour continued at [44]:

Nonetheless, the significant point is that Mr Hogan, who was acting for CTA, considered that no formal tenancy agreement was required because of his family connection with the owners. That was a close connection. Not only was Mr Hogan the husband of one of the owners, but he had worked in the family business. Mrs Vatselias had lent him the money he used to acquire his shares in CTA. His and his wife’s property was mortgaged in support of the finance provided to the owners for them to acquire the Seven Hills property and construct the building on it.

26. In March 2010, Marble Plus took possession of its area in the premises.

May 2010 disputed conversations

27. Another dispute at trial concerned discussions concerning the terms of the lease to CTA (five years with an option for another five years) which Mr Hogan said he had in May 2010 with each of the co-owners. Each of the co-owners denied having such conversations with Mr Hogan. His Honour gave reasons for not finding any of the witnesses to be reliable: at [48]-[57]. His Honour’s conclusions regarding the May 2010 alleged conversations were as follows (at [58]):

I am not satisfied that Mr Hogan specifically told Mrs Vatselias, Ms Scott or his wife of the lease terms he had discussed with Mr Doueihi. I am satisfied that he told Mr Doueihi that CTA wished to occupy Area B of the site for five years and have an option to do so for a further five years. I am not satisfied that that specific information was conveyed to Mrs Vatselias, Ms Scott or Ms Hogan by Mr Hogan or by Mr Doueihi. Mrs Vatselias and her daughters denied having such knowledge. The only specific evidence of their having such knowledge is Mr Hogan's evidence in the conversations quoted above.

28. Against this, his Honour noted that he had accepted Mr Hogan’s evidence that he told Mr Doueihi that to justify its expenditure, CTA would need a term of five-plus-five; that Mr Doueihi did not demur, and he said it sounded fair. His Honour also noted Mr Doueihi’s acknowledgment in cross-examination that such a request would have been reasonable and that Mr Doueihi’s objection was to anything being formalised: at [60].

29. His Honour also found that each of the other co-owners understood from the scale of CTA’s investment that it would be expecting a long-term occupation of the site and they left it to Mr Doueihi to discuss the details with Mr Hogan: at [61].

Agreement on rent and CTA entering into possession

30. By about May-June 2010 Mr Hogan and Mr Doueihi had agreed on the rent that CTA would pay being a figure of $12,000 per month: at [63]. His Honour did not accept Mr Doueihi’s evidence that CTA was also required to pay a proportion of outgoings. He observed that this was inconsistent with the parties’ subsequent conduct: at [64].

31. As indicated above, in late June 2010, CTA moved into possession and later in 2010 installed its manufacturing plant and equipment in Area B of the premises. Mr Doueihi did not object, having observed large silos been delivered on trucks and being installed by large cranes.

32. From 1 July 2010, invoices were issued in the names of the co-owners to CTA for rent of $12,000 per month plus GST. The co-owners did not issue invoices for any contribution to outgoings. Separate invoices were sent on the letterhead of Marble Plus to CTA for contribution to expenses such as cleaning, lawn maintenance and consumables. A charge in respect of rates and Council charges were included in invoices sent by Marble Plus to CTA for November 2010, January 2011 and April 2011.

33. On 19 January 2011, Mr Hogan sent an email to the financial controller of Marble Plus, which he copied to Mr Doueihi and also to Mr Fouhy, a director of CTA, recording his conversation with Mr Doueihi the previous day that they had agreed:

• Marble Plus would charge CTA rent of $12,000 plus GST per month that would include outgoings such as Council rates, insurance, water rates, general electricity for the site, gas and land tax;

• electricity for CTA’s plant and equipment would be charged separately;

• day to day consumables would be shared 50:50 as Marble Plus and CTA had similar staffing levels;

• other direct expenses would be reimbursed if CTA used the facilities of Marble Plus.

Mr Doueihi did not respond to the email. He accepted in cross-examination that it accurately recorded his discussion with Mr Hogan at the time. His Honour found that Mr Doueihi accepted CTA’s position because it had earlier been discussed and agreed to: at [67].

34. On 16 March 2011, Mr Hogan sent an email to Mr Doueihi and the accounts staff for Marble Plus and CTA noting:

As part of the lease, CTA is to pay for all power to run its production equipment.

35. Mr Doueihi read this email. He accepted in his evidence that he knew that Mr Hogan was referring to a lease that CTA had, and that the email reflected the state of affairs as Mr Doueihi understood it as at March 2011.

36. In May 2011, CTA asked accounts staff of Marble Plus to reverse the charges for outgoings. Marble Plus did so and issued a credit note reversing the charges on 3 June 2011. However, in December 2013, more than a year after the proceedings were commenced, Marble Plus issued invoices (back-dated to 15 August 2013) raising charges for outgoings for the years 2011-2014. His Honour found that there was no proper basis for those invoices: at [68].

37. The appellants also sought to claim in the proceedings what they contended was market rent of $135 per square metre from 1 December 2012. His Honour found on the evidence adduced that the rent CTA had paid was in accordance with a market rent without any additional obligation to pay outgoings: at [70].

CTA’s attempts to formalise the relationship in 2011

38. In July 2011, Mr Hogan and Ms Hogan separated. At that point, Mr Fouhy, of CTA, was anxious to have the lease arrangements formalised and he raised the matter with Mr Hogan. Subsequently, on 1 December 2011, Mr Hogan spoke with Ms Scott and sent her an email the following day referring to the terms of his proposed divorce settlement with Ms Hogan, that she transfer her 25 percent share of the Seven Hills property to him. Mr Hogan stated in his email that he would prepare a formal lease that protected both parties and tidied up loose ends. His Honour found that Ms Scott agreed there was a need to provide CTA with protection: at [75].

39. Between 2 and 7 December 2011, Mr Hogan exchanged emails with Mr Doueihi and Ms Scott, some of which were copied to Mrs Vatselias, seeking to formalise a lease. Significantly, as his Honour observed, Mr Hogan did not assert, in any of his correspondence with the co-owners, that there was an existing binding agreement for lease: at [84].

40. On 8 December 2011, Mr Hogan sent an email to Ms Scott, Mr Doueihi and Mrs Vatselias stating:

If I cannot be a partner in the building, please understand that I would like to formalise our arrangement by entering into a lease with Marble Plus. Put down on paper all the terms and conditions that are in a normal lease. This will protect you as a land lord and CTA as a tenant. As it stands today you can ask CTA to leave and this creates a huge expense and problem for CTA, this is not fair to CTA, its shareholders and employees. Eddie and I have had some early discussions about the terms of a lease and he can explain to you in more detail.

I think you guys need to get together and let me know either way. [Emphasis added.]

41. His Honour found that the discussions between Mr Hogan and Mr Doueihi referred to in this email, were the discussions Mr Hogan had with Mr Doueihi in 2009 and 2010 and these were properly characterised as early discussions about the terms of a lease. He found that Mr Hogan did not then believe that CTA was entitled as a matter of legal right to a five-plus-five-year lease. At the time of writing this email Mr Hogan understood the appellants could ask CTA to leave the premises: at [87].

42. The co-owners and Mr Hogan met on 15 December 2011 and continued communicating until early 2012 regarding formalising the lease. Ultimately, the co-owners offered CTA a short-term lease in June 2012 which increased rent by 40 percent. As his Honour observed, the appellants thereby sought to take advantage of CTA’s vulnerable position: at [93]. He found that the appellants took the benefit of Mr Hogan’s labour and skill in obtaining the site and constructing the factory. They encouraged CTA’s occupation of and investment in the site. Through Mr Doueihi they had struck a rent that was considered fair and was not lower than market rent. They knew that CTA expected to be able to occupy the site for a long term. They had left it to Mr Doueihi to discuss terms with Mr Hogan and Mr Doueihi had encouraged Mr Hogan’s assumption that CTA could occupy its area for at least five years with an option for a further five years.

41. On 18 October 2012, the solicitors for the co-owners gave a notice to quit to CTA; and on 26 November 2012, CTA commenced the proceedings mentioned above.

CTA’s detriment

44. It was not in dispute that the financial detriment CTA would suffer, if required to vacate the premises, would be significant.

45. The unchallenged evidence given by an accountant, Ms Bateman, assessed the cost to CTA of vacating the premises and relocating its plant as $1,683,452. In addition, CTA would need to fund three months’ stock to ensure that it did not lose its client base during the period of disruption which would require $1,589,785, although such cost would be offset by the sale of stock to customers over the three month period. These costs could not be financed through CTAs normal trading. Nor would CTA’s forecast annual profits of approximately $380,000 cover the additional expense of the move.

The primary judge’s reasons

46. Although the appeal only concerns the proprietary estoppel claim, it is necessary to briefly refer to his Honour’s reasons for rejecting CTA’s contract claim and conventional estoppel claim since they include some findings which are relevant to the proprietary estoppel claim.

Contract claim

47. His Honour found that whilst Mr Hogan and Mr Doueihi reached a consensus on terms as to rent, the term of the lease and option for renewal, and the area to be occupied by CTA, there was no objective indication of intent by either of them to enter into binding legal relations: at [111]. Among other things, there was no consensus as to who would be CTA’s landlord – Marble Plus or all of the co-owners of the property. His Honour observed that because of the informality of the arrangements no particular attention was paid to the question as to who the landlord might be, except that the parties by their conduct in raising invoices for rent in the names of the co-owners indicated that it was the co-owners of the property and not Marble Plus who was CTA’s landlord.

48. Nor was there agreement on other terms which, although not essential to a binding agreement for lease, would be expected to be negotiated and agreed if the parties intended to be bound by an agreement. Such terms included adjustments to rent, rent review if the option was exercised, CTA’s right to remove tenant’s fixtures on termination of the lease, its obligation to make good, obligations of repair, provision of a bond or bank guarantee, and duty to insure: at [112].

49. Further, while Mrs Vatselias, Ms Scott and Ms Hogan were content to leave it to Mr Doueihi to negotiate with Mr Hogan as to the terms on which CTA could occupy the premises, his Honour found that they did not give him authority to enter into an agreement for lease on their behalf or on behalf of Marble Plus: at [113].

Conventional estoppel

50. After referring to this Court’s approval in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603, of the statement of principles by Brereton J in Moratic Pty Ltd v Gordon [2007] NSWSC 5 at [32]–[33], his Honour made findings as to whether the parties all adopted the same assumption as to the terms of their legal relationship, and concluded that they did not. Accordingly, the conventional estoppel was not established: at [126]. It is desirable to set out in full his Honour’s findings as to what assumptions the parties did adopt:

[119]   The assumption CTA made, through Mr Hogan, was that CTA could exclusively occupy Area B of the premises and use the shared facilities upon paying the agreed rent for a term of five years beginning from its commencement of occupation with an option to extend the term for a further five years.

[120]   Although I accept that Mr Hogan assumed that CTA could occupy Area B for five years and for a further five years if it elected to do so, I do not conclude that Mr Hogan assumed that theco-ownerswere under a legally-binding obligation to permit such occupation. His assumption was as to what would happen, not as to what theco-ownerswere legally obliged to do.

[121]   At the time CTA made its expenditure on installing its plant and equipment and when it took occupation of the site, and at all material times before then, I find that Mr Doueihi assumed that CTA could occupy the areas designated for it for a period of five years with an option to extend the term for a further five years on paying the agreed rent. I find that Mrs Vatselias, Mr Hogan an Ms Scott assumed that CTA could occupy the site on a long-term basis, provided that Mr Hogan had cleared the details of CTA’s occupation with Mr Doueihi, but they otherwise made no assumption as to the period of CTA’s occupation. The defendants did not turn their minds to whether this was a matter of binding legal obligation, nor to whether Mr Hogan was acting under a mistake as to CTA’s legal rights.

51. Importantly, his Honour did not accept Ms Scott’s evidence that CTA would simply be warehousing and distributing its products on a temporary short-term basis. He found that Ms Scott was aware that CTA’s plant was installed for the purposes of its manufacturing operations and that she must have known that its occupation would be for the long-term, having regard to the extent of its expenditure: at [122].

52. Nor did his Honour accept Mrs Vatselias’ evidence that she was entirely unaware that Mr Hogan was intending to move in as CTA, or in any capacity at all, until after his occupation had commenced. He found that Mrs Vatselias had been told by Mr Doueihi of a proposal that another company could use about a quarter of the site, that he had explained to her and her daughters that Area B on the plans was the area intended for occupation by MCB Products and they approved: at [123].

53. With respect to Ms Hogan, his Honour found that she also knew that CTA would expect security of tenure, and expected her husband, Mr Hogan, to sort out the details with Mr Doueihi: at [125].

Equitable estoppel

54. His Honour decided the case by application of the doctrine of equitable estoppel by encouragement, with particular reference to the formulations of principle in the judgements in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; 164 CLR 387 (Waltons Stores), and the propositions distilled by Priestley JA in Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466 and re-stated in Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1989) 16 NSWLR 582 (Austotel v Franklins), and the application of those principles in DHJPM Pty Ltd v Blackthorn Resources Ltd [2011] NSWCA 348; 83 NSWLR 728 (DHJPMvBlackthorn) and Tadrous v Tadrous [2012] NSWCA 16. His Honour noted that the principles were traced back to the decisions in Dillwyn v Llewelyn (1862) 4 De GF & J 517; 45 ER 1284 and Ramsden v Dyson (1866) LR 1 HL 129.

55. His Honour addressed (at [132]) the reasoning of the majority in Waltons Stores (Mason CJ and Wilson J (at 404 and 406) and Brennan J (at 420 and 428-429)), noting that their Honours considered the case as raising an equitable estoppel which they characterised as a promissory estoppel. He found it unnecessary to pursue the question whether the estoppel should have been characterised as a proprietary estoppel, notwithstanding that the plaintiff was to give, not obtain, a proprietary interest in the land. Reference was made to the views expressed by KR Handley, Estoppel by Conduct and Election, Sweet & Maxwell 2006 at [11-031]-[11-033] and [13-037]-[13-041].

56. His Honour noted (at [137]) that Mason CJ and Wilson J did not say that the party asserting an estoppel must have assumed that a particular legal relationship existed or that the defendant would not be free to withdraw from an expected legal relationship. He contrasted this with the view expressed by Brennan J, in the first of his Honour’s well-known six propositions of what is essential for establishment of an equitable estoppel, as follows:

the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship.

57. Against the view of Brennan J, his Honour referred to the distillation of a number of propositions from Waltons Stores by Priestley JA in Silovi Pty Ltd v Barbaro at 472 and Austotel v Franklins at 610, 612, (Kirby P agreeing at 585), relevantly, proposition (5), formulated by Priestley JA in Austotel v Franklins as follows:

For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable.

58. Reference was also made to the qualification by Priestley JA in Austotel v Franklins (at 615–616) that even if the “tests” of Brennan J did not represent the view of the majority of the High Court, they were useful as a check and if the facts of the case did not measure up to those tests, it would be necessary to think thoroughly about why not.

59. His Honour noted that in S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637 at 653, the Full Court of the Federal Court of Australia (Neaves, Gummow and Higgins JJ), had described Priestley JA’s formulation of equitable estoppel in proposition (5) as being both “succinct” and “cogent”.

60. Having identified these principles, his Honour set out (at [141]) the essential steps in his reasoning as follows:

• The owners had encouraged Mr Hogan, and through him CTA, to assume that they would grant CTA an interest in the Seven Hills property entitling it to exclusive possession of Area B and the right to use the shared areas for five years with an option to renew for a further five years if it paid the rent that had been agreed;

• the appellants encouraged the adoption of that assumption by leaving discussions as to the terms of CTA’s occupation to Mr Doueihi, and by Mr Doueihi accepting that it would be fair for CTA to have such right of occupation;

• to the owners’ knowledge, CTA relied upon that assumption, partly through Mr Hogan’s expenditure of labour and skill in contributing to the design of the premises and supervising their construction, and also by installing its plant, which was expensive to install and would be expensive and disruptive to its business to remove;

• it would be unconscionable for the appellants to depart from the assumption that CTA was induced to adopt because they took advantage of Mr Hogan’s efforts, they knew of CTA’s expenditure, they accepted CTA as a tenant and accepted its rent being aware, at least, that CTA would expect to be able to occupy the premises for a long term;

• although Mrs Vatselias, Ms Scott and Ms Hogan did not give Mr Doueihi authority to contract, they did allow and expect him to act for them in negotiating with Mr Hogan and were fixed with Mr Doueihi’s knowledge as to Mr Hogan’s assumption of a right to a five-year term and Mr Doueihi’s acquiescence in that.

61. At [142], his Honour expressed the view that this analysis was justified by other well-known statements of general principle. Reference was made to the statement of Lord Kingsdown in Ramsden v Dyson at 170-171 that:

The rule of law applicable to the case appears to me to be this: If a man, under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without objection by him, lays out money upon the land, a Court of equity will compel the landlord to give effect to such promise or expectation.

62. Reference was made to other passages which his Honour described to like effect from Inwards v Baker [1965] 2 QB 29 at 36-37, Holiday Inns Inc v Broadhead (1974) 232 EG 951 at 1087, Crabb v Arun District Council [1976] 1 Ch 179, Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 at 151 that were cited with apparent approval by the Privy Council in Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) [1987] 1 AC 114 (Humphreys Estate).

63. His Honour also referred to the statement by McPherson J in Riches v Hogben [1985] 2 Qd R 292 at 300-301, in a passage approved by the High Court in Giumelli v Giumelli [1999] HCA 10; 196 CLR 101 at 121. There McPherson J emphasised that what attracts the equitable principle is not the promise itself but the expectation which it creates, and continued (at 301):

It is not the existence of an unperformed promise that invites the intervention of equity but the conduct of the plaintiff in acting upon the expectation to which it gives rise.

64. His Honour then turned (at [145]) to the point made by Priestley JA in Austotelv Franklins (at 615-616), that if the facts of the case do not measure up to the criteria formulated by Brennan J in Waltons Stores, one must ask why not: at [145]. This was relevant to whether non-satisfaction of Brennan J’s first proposition indicates that it would not be unconscionable for the appellants to depart from the assumption CTA had adopted. His Honour continued (at [146]):

CTA did not assume that a particular “legal relationship” existed between it and the defendants when Mr Hogan did his work and CTA incurred its expenditure and moved onto the site. Mr Hogan’s assumption that CTA could occupy its part of the premises for five years with a right of renewal for a further five years was not an assumption about what the defendants were bound to permit as a matter of legal right, but an assumption about what they would permit as a matter of likely fact. He made no assumption that a “particular legal relationship” would exist between them and that the defendants would not be free to withdraw from the expected legal relationship. His assumption was about what the defendants would do, not what they could do.

65. His Honour noted (at [147]) that Brennan J’s first proposition was consistent with the majority of the House of Lords in Ramsden v Dyson, in particular, the speech of Lord Cranworth at 140-144, 142 and 145-146. Reference was made (at [148]) to the view expressed by Professor McFarlane that in a case of proprietary estoppel based on acquiescence, or on a representation of fact or mixed fact and law, rather than a promise, that it is essential that a claimant must have acted on a mistaken view of his or her current legal rights: B McFarlane, The Law of Proprietary Estoppel, Oxford University Press, 2014 at [2.14].

66. His Honour characterised the requirement in the first proposition formulated by Brennan J as the “narrower view” and contrasted it with the “broader view” reflected in the joint judgment of Mason CJ and Wilson J in Waltons Stores and the formulation of principle by Priestley JA in Austotel v Franklins. His Honour observed (at [154]) that there was support in cases of promissory and proprietary estoppel for both the narrower and broader view, including his own decision in EK Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172, which had rejected the narrower view and its rigid requirement for a belief as to current rights, or as to whether the defendant is legally bound to proceed.

67. Reference was made (at [156]-[192]), to the divergence in approach in the English authorities both before and after the decision of the House of Lords in Ramsden v Dyson as to whether a plaintiff must have had a belief as to his or her legal rights, including Plimmer v Mayor, Councillors and Citizens of the City of Wellington (1884) 9 App Cas 699; Inwards v Baker; Crabb v Arun District Council; Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd; Holiday Inns Inc v Broadhead; and Humphreys Estate.

68. At [164], his Honour described Lord Kingsdown’s dissenting speech in Ramsden v Dyson as generally commanding acceptance and set out from the passage (at 170-171). . After setting out the principle (set out at [61] above), his Honour continued and the following passage (at 170-171):

...

If, at the hearing of the cause, there appears to be such uncertainty as to the particular terms of the contract as might prevent a Court of equity from giving relief if the contract had been in writing, but there had been no expenditure, a Court of equity will nevertheless, in the case which is above stated, interfere in order to prevent fraud, though there has been a difference of opinion amongst great Judges as to the nature of the relief to be granted ... but I do not understand any doubt to have been entertained ... that, either in the form of a specific interest in the land, or in the shape of compensation for the expenditure, a Court of equity would give relief, and protect in the meantime the possession of the tenant.

If, on the other hand, a tenant being in possession of land, and knowing the nature and extent of his interest, lays out money upon it in the hope or expectation of an extended term or an allowance for expenditure, then, if such hope or expectation has not been created or encouraged by the landlord, the tenant has no claim which any Court of law or equity can enforce. (Emphasis in primary judge’s reasons)

69. His Honour expressed the view (at [168]) that it is a misreading of Lord Kingsdown’s speech that by an “expectation” he meant a belief in a legally enforceable right. Reference was made to the view expressed by Dr Silink in her article “Equitable Estoppel in ‘Subject to Contract’ Negotiations” (2011) 5 Journal of Equity 252 at 278, that:

… an expectation of an interest in land ‘amounts to the same thing’ as a verbal agreement for the disposition of an interest in land because neither can be relied upon in a legal sense, both being unenforceable at law. Hence the role for equity in the circumstances Lord Kingsdown described – creation or encouragement by the defendant of an expectation in the plaintiff that he shall have an interest and knowledge of the detrimental reliance. …

70. His Honour continued (at [169]):

This is even clearer from the last of the passages quoted at [164] above where Lord Kingsdown says that a tenant who has a “hope or expectation” will have no claim if such hope or expectation has not been created or encouraged by the landlord. …

71. His Honour added (at [170]) that Lord Kingsdown did not say anything to indicate that on his reading of the facts the tenants wrongly believed they had a legal right to a long lease and that that was of critical importance; in contrast (at [167]) to the view expressed by Lord Walker in Cobbe at [64].

72. His Honour then returned to the Australian authorities, in particular Franklins Pty Ltd v Metcash Trading [2009] NSWCA 407; 76 NSWLR 603 and DHJPM v Blackthorn. At [206], his Honour identified two strands of reasoning in those cases. The second was that the plaintiff’s expectation must be as to the parties’ current legal relationship or as to something which the party is bound to do or not to do. In this respect, his Honour observed (at [207]):

In this case although there were early discussions about an agreement for lease, the parties did not expect to enter into an agreement for lease. CTA expected that it would be granted a lease. Through Mr Hogan it expected that it could have exclusive possession of Area B and could use the shared areas for a period of five years with the option to extend the period. That amounts to an expectation that a grant would be made. But it did not expect to negotiate and settle the terms of the lease and formalise the relationship by entering into a contract. Accordingly, the reasoning of Handley AJA in DHJPM, although binding, is not determinative.

73. At [208], his Honour stated the relevant question as being whether CTA’s estoppel claim must fail because Mr Hogan did not consider the appellants were bound to grant CTA a lease, as distinct from assuming that they would do so.

73. At [209], his Honour expressed the view that Franklins Pty Ltd v Metcash Trading and DHJPM v Blackthorn had applied Brennan J’s first proposition in Walton Stores “without analysis of relevant conflicting authorities”. Nonetheless, he accepted that those decisions were binding on him, subject to any later binding authority.

74. At [210], his Honour referred to the subsequent decision of this Court in Tadrous v Tadrous. That case involved a consensus between two brothers associated in property development. The consensus was not intended to give rise to legally binding relations, but nevertheless both the trial judge and this Court upheld it, and gave equitable relief on the basis of a proprietary estoppel. His Honour viewed Tadrous v Tadrous as a case where this Court did not apply Brennan J’s first proposition.

75. His Honour considered possible grounds of distinction between Tadrous v Tadrous and Franklins Pty Ltd v Metcash Trading and DHJPM v Blackthorn. At [218], he rejected as a point of distinction that the parties in DHJPM v Blackthorn expected to negotiate and enter into a contract, whereas in Tadrous v Tadrous they did not. His Honour reasoned that that was the ground of Handley AJA’s judgement but not that of the majority in DHJPM v Blackthorn. (I interpolate here that his Honour’s reference to Handley AJA being in the minority is wrong. Meagher JA agreed with the reasons of Handley AJA at [91], and Macfarlan JA indirectly agreed, as he agreed with the reasons of Meagher JA at [1]).

76. His Honour concluded that the distinction was that Tadrous v Tadrous concerned estoppel in a domestic or family context, albeit in the context of a commercial property development: at [219]. He considered that Tadrous v Tadrous was consistent with DHJPM v Blackthorn, except in a domestic or family context: at [226]. His Honour reasoned (at [227]):

In my view, the differences of outcome in cases in a purely commercial setting and cases in a domestic of (sic) family setting are to be explained not by applying different principles to those different classes of case, but by the different application (in some, but not all, cases) of the same requirements of reliance and reasonable reliance that are applicable to all cases. I respectfully doubt that equitable principles should be fragmented in the way indicated in Tadrous v Tadrous. Nonetheless, I think I am bound by DHJPM unless the present case is in a domestic or family context.

78. His Honour accepted that the present case was partly a domestic or family context and partly not: at [228]. He acknowledged that he had difficulty determining which side of the line the case fell into: at [229]. He had earlier observed that “the cases do not fall so neatly into such separate categories”: at [201]. Ultimately, he concluded that the present case fell into the domestic or family context and that a proprietary estoppel could be established, notwithstanding that Mr Hogan did not believe that the appellants were bound to grant CTA the lease he expected. In reaching this conclusion, his Honour took into account that:

• Mr Hogan (a director and shareholder of CTA) was related by marriage to three of the four co-owners, but he had no familial connection with the fourth owner, Mr Doueihi. In addition, there were other directors and shareholders of CTA who had no familial connection with the co-owners;

• nonetheless, the familial connection was close and explained the conduct of those who were not family. It explained why Mr Doueihi was content to allow Mr Hogan to take the lead in designing the premises and supervising the construction and why the other directors of CTA permitted matters to proceed as they did; and

• the closeness of the connection also explained why both CTA and the appellants did not agree on all the terms of their relationship that would be expected in the case of arm’s-length negotiating parties.

79. His Honour then turned (at [230]) to the question of whether a claim to equitable estoppel could be made out notwithstanding that the parties had not reached consensus on important commercial terms. Although Mr Hogan and Mr Doueihi did not discuss details of the lease other than the areas of occupation, initial rent and term, his Honour considered that this did not preclude granting equitable relief to give effect to CTA’s expectations even though that could require the court to supplement the parties’ agreement if the parties are unable to agree on additional terms. He concluded that the absence of agreement on all material terms would not be a sufficient reason to preclude an estoppel arising: at [245].

80. Next, his Honour considered (at [246] ff) the reasonableness of reliance by CTA on the assumption that it had been induced to adopt. This was relevant to the question of whether it was unconscionable for the appellants to deny that assumption. Although his Honour found (at [246]) that the directors of CTA did not act reasonably in relying on Mr Hogan’s assurance in February 2009 that there would be a lease commitment of five-plus-five at a minimum and that Mr Doueihi was fine with that, without later pursuing the question as to whether an agreement for lease had been settled or a lease granted, that conduct only went to CTA’s failure to protect its own interests: at [247]. His Honour continued (at [247]-[248]):

[247]   … In contrast to DHJPM, CTA’s unreasonableness does not go to the question as to whether a departure by the defendants from the assumption which they induced CTA to adopt would be unjust.

[248] In any event, reasonableness of reliance has to be judged according to the milieu in which Mr Hogan was operating. That was that except for the purpose of preparing documents to be submitted to a prospective financier, leases were never drawn up (see the evidence of Mr Doueihi quoted at para [35] above). In that milieu, I do not think it was unreasonable for Mr Hogan to rely on the honour of the family to respect what he had agreed with Mr Doueihi.

Relief

81. His Honour concluded that CTA was entitled to enforce an equity arising by estoppel: at [249]. The appropriate relief was “to make good the assumption that CTA was induced to adopt”: at [250]. His Honour found that such relief was not disproportionate; nor precluded by intervening interest of third parties; that a monetary award could not satisfactorily value the expectation; noted that there was no evidence of available alternative premises; and that the court might be required to settle the terms of a lease for a term of five-plus-five years if the parties were able to agree on the terms.

82. At [251], his Honour identified certain conditions upon which relief should be granted and (at [252]–[253]), addressed the terms to be included in the lease. On 18 December 2014, his Honour made a declaration and orders in terms including those indicated above.

83. The parties informed the Court that they had subsequently executed a lease in conformity with the Court’s declaration and orders and that CTA had exercised the option contained in the lease. The appellants sought to be heard further in relation to the question of relief, if the appeal was successful, having regard to CTA’s exercise of the option (T 35).

Grounds of appeal

84. The amended notice of appeal raised ten largely overlapping grounds of appeal. It is desirable to identify these grounds in the order in which they logically arise.

85. Grounds 7 and 7A challenge his Honour’s factual finding (at [141]) that CTA assumed that an interest (in the premises) would be granted to CTA. It is contended that this finding is contrary to other findings made by his Honour and part of Mr Hogan’s unchallenged affidavit evidence.

86. Grounds 4, 5 and 7B relate to the nature of the assumption required to found a proprietary estoppel. The essential contention is that the present case is analogous to DHJPM v Blackthorn and that his Honour failed to apply Handley AJA’s statement of the principle that an expectation that negotiations would be successful and that a contract would come into existence could not support a proprietary estoppel. There is a related contention that his Honour erred in concluding that Tadrous v Tadrous fragmented equitable principles into those applicable in a commercial context and those applicable in a domestic/family context. It is also contended, in the alternative, that his Honour erred in concluding that the present case was to be characterised as a domestic/family case.

87. Grounds 2 and 3 relate to the adequacy of the assurances given to Mr Hogan, and through him, CTA. It is contended that an expectation as to what the appellants would permit as a matter of likely fact was insufficient to support a proprietary estoppel.

88. Grounds 6 and 8 relate to the reasonableness of the assumption and reliance upon it by CTA. It is contended that his Honour erred in concluding that it was reasonable for Mr Hogan to rely on the honour of the family in respect of what he had agreed with Mr Doueihi. It is also contended that his Honour ought to have found that CTA did not make an assumption as to an interest in land induced or encouraged by the appellants, or if it did, then reliance on the assumption was not reasonable and it was not unconscionable for the appellants to depart from that assumption.

89. Finally, ground 1 relates to his Honour’s finding that all of the appellants were bound by a proprietary estoppel. It is contended that this finding is not justified by other findings which his Honour made, including the findings concerning Mr Doueihi’s authority to bind the co-owners, the absence of a concluded agreement between CTA and the co-owners or Marble Plus and CTA’s belief as to whether the appellants were bound to give CTA a lease.

90. Although the appellants’ submissions followed a different order, it is convenient to deal with the grounds of appeal in the order set out above.

Resolution of factual challenge to the assumption made by CTA (grounds 7 & 7A)

Ground 7

91. There are two bases to the appellants’ attack on the factual finding that CTA made an assumption that an interest (in the premises) would be granted to it. The first relied upon alleged inconsistencies between this finding and other findings concerning Mr Hogan’s evidence and that CTA knew that Mr Doueihi did not have authority to bind the other co-owners, who did not know of CTA’s request for a five-plus-five-year lease. The second is that the evidence of Mr Hogan which was accepted by his Honour, was said to be insufficient to justify the finding concerning the assumption made by CTA.

92. The starting point with ground 7 is to note that the appellants’ argument tended to conflate and misapply his Honour’s reasons for rejecting CTA’s contract and conventional estoppel claims, with the reasons for upholding the proprietary estoppel claim. In this regard, two general observations should be made.

93. The first is that a feature which distinguishes equitable estoppel from the enforcement of a contractual obligation is the absence of a legally binding promise: Tadrous v Tadrous at [38]. The second is that the elements of a common law conventional estoppel claim differ from an equitable estoppel claim. A conventional estoppel operates when both parties have adopted the same assumption as the basis of their legal relationship: Ryledar Pty Ltd v Euphoric Pty Ltd at [199]; Moratic Pty Ltd v Gordon at [32]-[33].

94. Turning first to the alleged inconsistencies in his Honour’s findings, when addressing the different claims.

95. First, the appellants pointed to his Honour’s rejection of parts of Mr Hogan’s evidence, including that he believed in mid-2009 that CTA had a binding and enforceable agreement to lease, and his alleged conversations with the co-owners in May 2010.

96. The rejection (at [32]) of Mr Hogan’s evidence that he believed in mid-1999 that he had an agreement for lease with Mr Doueihi that was an enforceable agreement, is not inconsistent with his Honour’s finding (at [37]) that Mr Hogan assumed that, consistently with the family practice, it was not necessary to make a formal agreement for lease. The error in Mr Hogan’s subjective belief, as a lay person, as to the existence of an agreement does not render any less likely the proposition that Mr Hogan made an assumption that it was not necessary to enter a contract to formalise the tenancy arrangements having regard to the family’s practice.

97. Nor is the rejection (at [58]) of Mr Hogan’s evidence of the alleged conversations with the other co-owners in May 2010 concerning a lease with a five-plus-five-year term, inconsistent with his Honour’s finding (at [37]) that in mid-2009 Mr Hogan expected (based on his conversations with Mr Doueihi) that CTA would be allowed to remain on the site at a rent on which he and Mr Doueihi agreed for a long term, namely for five years from the time the premises were ready for occupation by CTA with an option for a further five years.

98. Next, the appellants pointed to the suggested inconsistency between his Honour’s finding as to Mr Hogan’s assumption as to CTA’s occupancy of the premises and Mr Hogan’s belief at the time of his later email to all of the co-owners on 8 December 2011 (set out at [40] above) that the co-owners could ask CTA to leave the premises.

99. However, the appellants’ reliance on Mr Hogan’s 8 December 2011 email is misplaced. It ignores the context of his Honour’s finding (at [87]) that Mr Hogan believed, in December 2011, that “as things then stood” the appellants could ask CTA to leave the premises. That finding related to Mr Hogan’s state of mind after the close family connection between Mr Hogan and three of the co-owners had been fractured by the separation of Mr Hogan and Ms Hogan. At that point in time, it is unsurprising that Mr Hogan did not expect that he could rely on the honour of the family to support CTA’s interest in the premises. Contrary to the appellants’ submissions, this finding which speaks to a later time, is not inconsistent with the assumption which the appellants had earlier encouraged Mr Hogan, and through him, CTA, to adopt, namely that an interest would be granted to CTA.

100. Next, the appellants contended that the finding (at [141]), that the appellants encouraged Mr Hogan, and through him, CTA, to assume that an interest would be granted to CTA, was inconsistent with two matters. One was that CTA did not assume that the co-owners were under a legally binding obligation to permit such occupation. The other was that CTA knew that Mr Doueihi did not have authority to bind the other co-owners, who did not know of a request for a five-plus-five-year lease.

101. As to the first matter, there is no inconsistency between his Honour’s reference (at [141]) when addressing CTA’s proprietary estoppel claim, to Mr Hogan’s assumption of a “right” to a five-plus-five-year term and Mr Doueihi’s acquiescence in that, and the earlier finding (at [120]) with respect to CTA’s conventional estoppel claim, that Mr Hogan did not believe that the co-owners were under a legally binding obligation to permit such occupation. The premise of the appellants’ submission is that his Honour should be taken to be referring (at [141]) to an assumption by Mr Hogan as to CTA’s legal “right”. However, that would be to read his Honour’s reasons in a way which conflated the different elements of conventional estoppel and proprietary estoppel.

102. That his Honour was not referring (at [141]) to an assumption by Mr Hogan as to a legal “right”, is made abundantly clear (at [146]): where his Honour found that CTA did not assume that a “particular legal relationship” existed between it and the appellants, when Mr Hogan did his work and CTA incurred its expenditure and moved onto the site, and that Mr Hogan’s assumption concerning CTA’s occupancy of the premises, was not an assumption about what the appellants were bound to permit as a matter of “legal right”. Mr Hogan’s assumption concerning the “right” of occupation described by his Honour was that identified in the first sentence of his Honour’s reasons at [141] - that an interest would be granted to CTA to occupy the premises on the terms found by his Honour.

103. As to the second matter, the appellants contended that his Honour’s finding (at [113]) - that the other co-owners did not give Mr Doueihi authority to bind them or Marble Plus - was inconsistent with the later finding (at [141]) - that the other co-owners were fixed with Mr Doueihi’s knowledge as to Mr Hogan’s assumption of a right to a five-plus-five-year term and Mr Doueihi’s acquiescence in that. However, this argument ignored the distinction between authority to bind in contract, when addressing the contract claim, and, authority to conduct negotiations and, in the process, make representations, when addressing the proprietary estoppel claim.

104. His Honour correctly recognised this distinction throughout his reasons. He found that the co-owners relied on Mr Doueihi to handle matters in relation to the site, such as the terms of the building contract, negotiating the terms of the finance and negotiating terms with CTA, but did not give him authority to enter into any contract on their behalf: at [33]. His Honour made related findings that the co-owners had left it to Mr Doueihi to discuss terms with Mr Hogan, when finding that Mr Doueihi had encouraged Mr Hogan to assume that CTA could occupy its area for at least five years with an option for a further five years: at [93]. His Honour expressly distinguished between Mr Doueihi’s authority to negotiate the terms on which CTA could occupy the premises, and his absence of authority to enter into a binding agreement for lease: at [113]; and found that the co-owners did allow and expect Mr Doueihi to act for them in negotiations with Mr Hogan: at [141]. None of these findings were challenged.

105. Nonetheless, the appellants submitted that it would be a “curious” result if Mr Doueihi’s authority to negotiate on behalf of the other co-owners was sufficient to encourage the adoption of an assumption by CTA as to the terms of its occupation of the premises when Mr Doueihi lacked authority to bind the co-owners to enter into a contract. I do not agree. It was not suggested that the other co-owners placed any limitation on Mr Doueihi’s authority to make representations to CTA concerning its long term occupancy of the premises by CTA, or that his authority to negotiate did not include authority to make representations as to the term of any occupation by CTA. As his Honour found (at [93]), the other co-owners knew that CTA expected to be able to occupy the site for a long term and had left it to Mr Doueihi to discuss the terms with Mr Hogan.

106. Nor was the assumption by Mr Hogan, and through him CTA, that an interest would be granted to CTA (at [141]), inconsistent with Mr Hogan not assuming that the co-owners were under a legally binding obligation to permit exclusive occupation of its designated area of the premises. As will be seen, the nature of the assumption required to support a proprietary estoppel will depend on the particular circumstances. Given his Honour’s findings as to the close connection between Mr Hogan and three of the co-owners, and Mr Hogan’s understanding consistently with the family’s practice that it was not necessary to make a formal agreement for lease, it is unsurprising that Mr Hogan focus was “not on intangible legal rights but on tangible property which he or she expects to get”: Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; 1 WLR 1752 (Cobbe’scase) at [68] (Lord Walker).

107. Next, the appellants contended that the only evidence to support Mr Hogan’s assumption was his conversation with Mr Doueihi in mid-2009 in which he said that, to justify the expenditure, CTA would need a five-plus-five-year term, and that Mr Doueihi had agreed in cross-examination that such a request would have been reasonable. It was argued that this evidence was insufficient to justify his Honour’s finding.

171. Central to his Honour’s reasoning was his view (at [218]) that DHJPM v Blackthorn was not distinguishable from Tadrous v Tadrous on the ground that in the former case the parties expected to negotiate and enter into a contract, whereas in the latter case they did not. I respectfully disagree. As already indicated, the primary judge seems to have overlooked Meagher JA’s (and indirectly Macfarlan JA’s) agreement with Handley AJA’s judgment. DHJPM v Blackthorn and Tadrous v Tadrous are distinguishable on the ground stated in [99] of Handley AJA’s judgment.

172. The dichotomy between arm’s length/commercial cases and domestic/family cases is not to be seen as fragmenting equitable principles. As Handley AJA explained in DHJPM v Blackthorn, this distinction reflects the nature and circumstances usually found in two types of cases.

173. After observing that estoppels by encouragement have been applied in a wide variety of factual situations, Handley AJA referred to the two categories of case and continued at [104]-[105]:

... Most fall into one of two categories; those where the parties are in a domestic or family relationship, and those where the relationship is commercial. Parties in the latter category typically contemplate a legal relationship and frequently intend to enter into a contract or otherwise formalise their expectation.

In domestic or family cases, the parties are not at arm's length and usually have no intention of entering into a contract or formalising their expectation. The party encouraged will frequently expect to receive a gift, inter vivos or testamentary. [Emphasis added]

175. Importantly, Handley AJA did not suggest that the dichotomy between arm’s-length/commercial cases (of which DHJPM v Blackthorn is an example) and domestic/family cases was universal, nor that it is a finite framework. Read together, his Honour’s qualifications, including particularly that “most” cases fall into one of two categories, emphasised that it is the circumstances of the case which are decisive as to whether an equitable proprietary estoppel is made out. His Honour’s careful language allows for the potential for the parties, in either of the two categories, or indeed in a mixed category, to have different expectations as to entry into a formal written agreement to those usually or typically held in a commercial case or a domestic/family case.

176. What is important and what “typically” distinguishes the two categories of case is the focus of the assumption, as Lord Walker explained (at [68]) in the passage from Cobbe’s case (set out at [142] above). This typical distinction was highlighted by Lord Neuberger when he contrasted the facts in Thorner v Major to Cobbe’s case, observing (at [92]), that Mr Cobbe’s claim failed because he was effectively seeking to invoke proprietary estoppel to give effect to a contract which the parties had intentionally and consciously not entered into, and because he was simply seeking a remedy for the unconscionable behaviour of the other party.

177. By contrast, in Thorner v Major, at no time had either Peter (the cousin) or David (the son) even started to contemplate entering into a formal contract as to ownership of the farm after the cousin’s death. Lord Neuberger continued in Thorner v Major (at [97]):

Nor could such a contract have been reasonably expected even to be discussed between them. On the deputy judge’s findings, it was a relatively straightforward case: Peter made what were, in the circumstances, clear and unambiguous assurances that he would leave his farm to David, and David reasonably relied on, and reasonably acted to his detriment on the basis of, those assurances, over a long period.

178. So long as it is appreciated that the dichotomy between arm’s-length/commercial cases and domestic/family cases is not universal or finite, no difficulty arises in using these labels to describe different categories of case. As always, however, care must be exercised when using shorthand labels to describe the context. This is more so because, as the primary judge recognised, many cases do not fall neatly into such separate categories. Ultimately, the circumstances of the case are what is important, including the nature of the relationship between the parties and whether they contemplated that any interest to be granted or promise to be performed was to be created by a binding contract: DHJPM v Blackthorn (at [56]).

Tadrous v Tadrous does not fragment equitable principles

179. The appellants contended that his Honour erred in treating Tadrous v Tadrous as fragmenting equitable principles into those applicable in a commercial context and those applicable in a domestic or family context. As already indicated, I do not agree that Tadrous v Tadrous is to be viewed as fragmenting equitable principles.

180. Tadrous v Tadrous involved a consensus between two brothers associated in property development. The respondent and her late husband, (Charlie), advanced in excess of $500,000 to his brother (Michael), the appellant, to enable the redevelopment of a property which he owned. The respondent’s case was that this money was paid following oral assurances by the appellant to the respondent and her husband that, on completion of the redevelopment, they would receive their money back and additionally be able to acquire one of the three townhouses at cost. The primary judge concluded that the parties had no intention to create legal relations but nonetheless the judge and this Court upheld an equitable proprietary estoppel and granted the respondent relief by way of an equitable charge over the brother’s property to secure the amount advanced plus interest.

181. On appeal, this Court rejected the argument that, having held that the parties had no intention to create legal relations, the primary judge should have concluded that any assurance or expectation relied upon was not capable of giving rise to an estoppel by encouragement. Meagher JA (with whom Young JA and Handley AJA agreed) said:

[38] One feature that distinguishes the equitable principle from the enforcement of a contractual obligation is the absence of a legally binding promise. What attracts that principle is an assurance or encouragement which creates an expectation that a interest will be granted and conduct in reliance upon that expectation: Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 at [35] quoting McPherson J in Riches v Hogben [1985] 2 Qd R 292 at 300-301. It is sufficient to give rise to the equity that between the parties the expectation is created and acted upon on the basis that it will be made good: Ramsden v Dyson (1866) LR 1 HL 129 at 170 per Lord Kingsdown.

[39] An equitable estoppel can be established notwithstanding that the expectation contains elements that would not be sufficiently certain to amount to a valid contract or is formed on the basis of vague assurances: Gillett v Holt [2001] Ch 210 at 226 per Robert Walker LJ. This is particularly so in circumstances, such as in the present case, where the estoppel arises in a domestic or family context.

…

[41] In Thorner v Major [2009] 1 WLR 776 the party claiming the estoppel sought to enforce an expectation of inheritance. It was sufficient that clear and unambiguous assurances were made to him that he would be left the farm and that he reasonably relied on and acted to his detriment on the basis of those assurances over a long period (at [97]).

[42] The primary judge's findings justify his conclusion that the respondent was entitled to an equitable estoppel.

"52. On the facts that I have found, the [appellant] made a promise to the [respondent] and Charlie, knowing that they would act to their detriment in reliance on that promise by borrowing substantial moneys and further encumbering the existing mortgage security over their home. The [appellant] has resiled from that promise and seeks to benefit from doing so. He promised that they would 'get every cent back plus a property at cost'. He offered them an interest in the William Street property on favourable terms and promised to repay their investment."

182. Contrary to the appellants’ submissions, Tadrous v Tadrous was not simply concerned with the extent of the remedy to satisfy the equity found to have arisen in that case. It was a case in which an equitable proprietary estoppel was found in a domestic/family context, albeit with respect to a commercial property development. The estoppel was based on an expectation-encouraged by the owner of the land - that an interest would be granted but there was no expectation of a legally binding agreement.

183. As CTA correctly submitted, Tadrous v Tadrous should not be read as fragmenting equitable principles, nor creating an exception or a need to distinguish DHJPM v Blackthorn. Meagher JA and Handley AJA did not see any need in Tadrous v Tadrous to distinguish DHJPM v Blackthorn. That is not surprising. The two cases dealt with different factual circumstances. In DHJPM v Blackthorn, the parties expected to negotiate and enter into a contract, whereas in Tadrous v Tadrous they did not. The critical factor, usually found in commercial cases (that the parties were proceeding on the basis that their anticipated dealings would be formalised in a legally binding way), was absent in Tadrous v Tadrous.

184. Contrary to the appellants’ submissions, the primary judge did not err in giving greater weight to the family context than the commercial nature of the tenancy when assessing the adequacy of the assurance given to CTA and the reasonableness of CTA relying upon the assumption that it would be granted an interest (in the premises) in circumstances where the family’s practice was not to enter into formal leases.

185. Whilst I respectfully disagree with the primary judge that Tadrous v Tadrous involves fragmentation of equitable principle, there was no error in his Honour’s application of the reasoning in that decision to the circumstances of the present case. In my view, grounds 5 and 7B have not been made out.

The requirement of certainty

186. Questions regarding the adequacy of the assurance require careful identification of the nature of the assumption by the plaintiff (here, CTA) which the other party is said to be estopped from denying or asserting: DHJPM v Blackthorn at [44]. The assurance or promise is to be assessed by reference to the circumstances of the case: Verwayen at 445 (Deane J).

187. It has been said that whether an assumption is reasonable to found an estoppel involves consideration of whether it is certain: Legione v Hateley at 435 (Mason and Deane JJ). In Sullivan v Sullivan [2006] NSWCA 312; 13 BPR 24, 755 at 24, 768, Hodgson JA said (at [85]):

[80] Generally, a promise or representation will be sufficiently certain to support an estoppel if it was reasonable for the representee to interpret the representation or promise in a particular way and to act in reliance on that interpretation, thereby suffering detriment if the representor departs from what was represented or promised.

188. This statement was cited with approval in Evans v Evans [2011] NSWCA 92 at [124]. See also, DHJPM v Blackthorn at [107]-[108] (Handley AJA).

189. The appellants accepted that an estoppel may be established notwithstanding that a representation is insufficiently certain, in the sense of precise, to found a contract: Evans v Evans at [121] (Campbell JA); Flinn v Flinn [1999] VSCA 109; [1999] 3 VR 712 at 738-739 (Brooking CJ Charles and Batt JJA agreeing); Galaxidis v Galaxidis [2004] NSWCA 111 at [93]-[94] (Tobias, Giles and Hodgson JJA agreeing); see also DHJPM v Blackthorn at [54] .

190. The primary judge found that Mr Hogan and Mr Doueihi had reached a consensus on terms as to rent, the term of the lease and the option for renewal, and the area to be occupied by CTA (at [111]). He further found (at [141]) that while Mr Hogan, and through him, CTA, assumed that an interest would be granted, CTA did not expect to negotiate and settle the terms of the lease and formalise the relationship by entering into a contract: at [207].

191. Here, the parties understood that leases were never drawn up by the co-owners, except for the purpose of preparing documents to be submitted to a prospective financier. Mr Hogan considered that no “formal” tenancy agreement was required because of his family connection with the owners. As his Honour found, it was a close connection, not only because he was the husband of one of the co-owners, but also because he worked in the family business, he had borrowed money from Mrs Vatselias via her superannuation fund to acquire his shares in CTA, and the property which he owned with his wife was mortgaged in support of the finance provided to the co-owners to acquire the Seven Hills property and construct the building on it. Mr Hogan had told Mr Doueihi that to justify its expenditure, CTA would need a term of five-plus-five years and, as his Honour found, Mr Doueihi said it sounded fair. Mr Doueihi’s only objection was to anything being formalised. The assurance by Mr Doueihi (that it would be fair for CTA to have such a right of occupation) was intended to give CTA comfort that an interest would be granted to CTA. There is no challenge to these findings.

192. Nonetheless, the appellants sought to characterise his Honour’s finding that Mr Hogan made an assumption that an interest would be granted to CTA, as no more than a “hope” or a “confident expectation” that the appellants would do the proper thing, fastening onto the words of Lord Walker in Cobbe’s case at [65], which Meagher JA adopted and applied in DHJPM v Blackthorn at [67]. Reference was also made to the observation of Brennan J in Waltons Stores (at 422), relating to Humphreys Estate, that to found an estoppel it is not sufficient to show that the plaintiff expected, as a matter of probability, that the party said to be estopped would not withdraw from the (expected) agreement.

193. In support of this characterisation of CTA’s expectation or assumption, the appellants pointed to the finding (at [146]), that Mr Hogan’s assumption regarding CTA’s occupancy of its part of the premises was not an assumption about what the appellants were bound to permit as a matter of legal right, but an assumption about what they would permit as a matter of “likely fact”. The appellants contended that this was a finding of no more than that Mr Hogan assumed that he would “probably” get what he wanted. I do not read his Honour’s finding so narrowly.

194. Read in context, his Honour’s finding as to what the appellants would permit as a matter of “likely fact” was expressed thus to emphasise that Mr Hogan made an assumption about what the appellants would do, not an assumption that ‘a particular legal relationship’ would exist between CTA and the appellants. His Honour made this clear when he went on (at [146]) to say that “[Mr Hogan’s] assumption was about what the defendants would do, not what they could do”. Contrary to the appellants’ submission, this was not a finding that Mr Hogan merely expected “as a matter of probability” that he would get what he wanted.

195. The appellants characterised his Honour’s finding (at [229]) - that Mr Hogan did not believe that the appellants were bound to grant CTA the lease he expected - as a finding that Mr Hogan did not have a belief as to what the appellants were “bound” or bound in honour, to do. It was argued that his Honour added an impermissible gloss (at [248]), when finding that it was not unreasonable for Mr Hogan to rely on the honour of the family to respect what he had agreed with Mr Doueihi. I do not agree. His Honour (at [248]) was not referring to an agreement in the sense of a binding contract. If CTA had a binding contract, it would have had no need to rely upon an estoppel. His Honour clearly had in mind the consensus which he found that Mr Hogan had reached with Mr Doueihi as to the rent, the term of the lease and option for renewal, and the area to be occupied by CTA: at [111].

196. The appellants made a related complaint that Mr Hogan did not ever assert that he was relying “on the honour of the family”. However, given the acceptance of Mr Hogan’s evidence that he assumed consistency with the family’s practice that it was not necessary to make a formal agreement for lease, his Honour was entitled to infer that Mr Hogan was relying on the honour of the family to respect what he had agreed with Mr Doueihi.

197. The appellants next contended that there was an inconsistency between his Honour’s finding (at [146]) that Mr Hogan was relying on what the appellants would permit as a matter of “likely fact” and the finding (at [248]) that it was not unreasonable for Mr Hogan to rely on the honour of the family. Again, I do not agree. As explained above, his Honour’s statement of what the appellants would permit as a matter of “likely fact”, must be read together with his finding that Mr Hogan’s assumption was about what the appellants would do, not what they could do.

198. The appellants also complained that the primary judge (at [169]), erred in treating the reference to “hope” in the dissenting speech of Lord Kingsdown in Ramsden v Dyson (set out at [68] above), as meaning that an encouraged “hope” would be enough to found an estoppel. I do not agree that the primary judge’s reasons should be read this way.

199. The primary judge expressed the view (at [168]) that it is a misreading of Lord Kingsdown’s speech that by an “expectation”, he meant a belief in a legally enforceable right. So much should be accepted. The appellants contended that Lord Kingsdown’s speech should not be read to mean that a tenant who took his chances nonetheless had an equity. That also can be accepted.

200. The distinction Lord Kingsdown was making (at 170-171) in the last passage (set out at [68] above) lies between those assumptions which are created or encouraged by the landlord those which are not. It was in the latter case that the assumption by the tenant would not be sufficient to found an estoppel. I do not read the reasons of the primary judge as intending to convey that an encouraged “hope”, in the sense of that harboured by a tenant who took his chances, is sufficient to create an equity.

201. In my view, the assurance given by the appellants was clear enough. There was no error in his Honour’s finding that the assumption made by Mr Hogan, and through him, CTA, was that an interest in the premises would be granted to CTA. Grounds 2 and 3 have not been made out.

Unconscionability – the reasonableness of the assumption and reliance on it

202. The appellants’ attack on the reasonableness of the assumption and reliance upon it by CTA is essentially directed to two matters. The first is that the parties had only agreed on what the appellants described was a “passing rent”, not a long-term rent. It was argued that what a comfortable, even lazy, landlord might be prepared to accept for rent pro tem on a month-to-month tenancy, is inherently different to what might be required for a term up to ten years .

203. The second is the absence of agreement on all commercial terms of the tenancy. It was argued that it was unreasonable for CTA to rely on the assumption, as found by his Honour, taking into account the extent to which the terms of the tenancy agreement were not complete.

204. It has been said that estoppel can be established notwithstanding that a promise is lacking in detail. In Giumelli v Giumelli, the High Court held that a party should be estopped from resiling from its promise to give a portion of land notwithstanding that the boundaries of the proposed land were not precisely defined.

205. In Wright v Hamilton Island Enterprises Ltd [2003] Q Conv R 54-888, the appellants were licensees of restaurants on Hamilton Island and had been given assurances that if they paid their accounts and provided a good restaurant their licence would be renewed at the licensee’s request and be ongoing. The Queensland Court of Appeal held that the absence of specific details of the promise such as the mechanism and timing of the exercise and right to renew were not fatal to the estoppel claim as the Court could determine these details by reference to what would be reasonable in the circumstances: at 60-946 - 60-947.

202. Dealing first with the question of rent. The appellants contended that the present case was analogous to DHJPM v Blackthorn, Austotelv Franklins and Ramsden v Dyson, where no rent for a long-term lease of the subject property had been agreed and that this was fatal to an estoppel. In my view, those cases are distinguishable.

203. In Ramsden v Dyson, rent had been agreed by a yearly tenant, paid and accepted for a long period of time, but only on the basis that it was passing, not that rent appropriate to a long-term tenure. In DHJPM v Blackthorn, Meagher JA observed at [60], that the primary judge had found that the parties had discussed a monthly rental of “around” $10,000 a month (plus GST) or “plus or minus a bit”. In Austotelv Franklins, no rent had been agreed in respect of the increased store size (at 584, 602 and 617).

204. The present case is different. The agreed rent was a market rent, established against the background of a term of five years with an option for a further five years. Mr Doueihi did not qualify his agreement to the rent at $12,000 per month (plus GST) as only referable to either the first year of the five-year term, or indeed a month-to-month tenancy, as the submissions of the appellants would suggest. I do not agree with the appellants’ characterisation of the initial rent as merely a “passing rent”.

205. His Honour considered the question of rent review, both during the initial term of five years and for any renewed term. His Honour took into account that in its modified terms sheet prepared by Mr Hogan in mid-2009, CTA proposed adjustments of rent according to movements in the CPI, as well as a review to market if the option for renewal was exercised. In his Honour’s view, CPI increases were unnecessary during the first five-year term because the rent that had been paid to date was market rent (at [252]). His Honour determined that the lease should provide for a review to market if the option is exercised, and that there should be provisions for the rent for the renewed term to be increased in accordance with the CPI: at [252]. No error has been demonstrated in that reasoning.

206. As to the identity of the landlord, there is no challenge to his Honour’s finding (at [111]) that the parties by their conduct in raising invoices for rent in the names of the customers indicated that it was the co-owners and not Marble Plus who were CTA’s landlord.

207. The appellants next contended that his Honour had failed to consider that significant matters of detail had not been agreed or discussed and that this undermined the reasonableness of CTA’s reliance on the assumption it made. I do not agree. His Honour addressed the issue of incompleteness of terms: at [230] – [245]. After referring to the judgments of the trial judge (Needham J) and in this Court (and Priestley JA, Kirby P and Rogers AJA) in Austotel v Franklins, his Honour concluded that Austotel v Franklins did not stand in the way of upholding a claim for equitable estoppel because the parties had not reached consensus on important commercial terms: at [234].

208. His Honour referred to a number of other authorities for the proposition that uncertainty preventing the creation of a contract has never been regarded as necessarily preventing the beneficial intervention of equity: Flinn v Flinn at [95] (Brooking JA); Australian Crime Commission v Gray [2003] NSWCA 318 at [190] ff (Ipp JA; Mason P and Tobias JA agreeing) a case involving promissory estoppel; Pacific National (ACT) Ltd v Queensland Rail [2006] FCA 91 at [668] (Jacobson J). His Honour contrasted the case of Mobil Oil Australia Ltd v Wellcome International, where the Full Court of the Federal Court held that, representations made by an officer of an oil company to the company’s franchisees of its petrol stations that they would receive an extended tenure if certain performance levels were met did not constitute a commitment given by the oil company (at 515) because:

a generalised commitment to find a way to implement an appropriate tenure for achievements scheme cannot, in the present context, give rise to an expectation of either a “particular legal relationship” coming into existence or the grant of an identifiable “interest” to use the language of Waltons Stores and of Plimmer. The essential elements and details of the legal relationship are lacking as are any specific details relating to the duration or terms of any extension or renewal or of the period over which the franchisees would qualify.

213. His Honour accepted that insufficient definition of the relevant proposal was relevant to the reasonableness of the plaintiff’s reliance upon the proposal and whether it was unconscionable for the defendant to deny an assumption which an indefinite proposal may have induced. He observed that the matter is always one of degree: at [243].

214. The appellants did not dispute his Honour’s statement of the principles, in particular, that the significance of the incompleteness of terms is a matter of degree. Their complaint is directed to the absence of agreement on all material terms.

215. In this respect, his Honour noted that in the revised term sheet, Mr Hogan had indicated his agreement to a number of matters including, CTA’s taking out $10 million public liability and plate glass insurance, and a “make good” obligation on termination or expiry of the lease: at [245]. His Honour considered that these could be included in the terms of a lease if CTA was entitled to enforce an estoppel. His Honour concluded that the absence of agreement on all material terms would not be a sufficient reason to preclude an estoppel arising: at [245].

216. Accepting, as his Honour found, that the matter is one of degree, no error has been demonstrated in his Honour’s assessment of the significance of the absence of agreement on all material terms. Given that Mr Hogan did not expect to negotiate and settle the terms of a lease and formalise the relationship by entering into a contract (at [207]), it was not unreasonable, as his Honour found, for Mr Hogan to rely upon the honour of the family to respect what he had agreed with Mr Doueihi. The essential elements of CTA’s occupancy had been agreed. The identity of CTA’s landlord was established by the parties by their conduct in raising invoices for rent in the names of the co-owners. Absence of agreement on all material terms did not stand in the way of upholding the claim for proprietary estoppel. The primary judge did not err in reaching that conclusion.

217. In my view, grounds 6 and 8 have not been made out.

The equity and the relief

218. Ground 1 is related to grounds 6 and 8. It is contended that, having regard to five identified factual findings, his Honour erred in finding that all of the appellants were bound by a proprietary estoppel requiring them to execute a written lease of the premises in favour of CTA on the terms referred to above. The five matters were:

1. that Mr Doueihi was not the agent of the co-owners and had no authority to bind them;

2. there was no evidence that Mr Doueihi had told any of the other co-owners that CTA had sought a lease for a term of five years with an option for a further five years;

3. there was never any concluded agreement or intention to enter legal relations between CTA and any of the appellants;

4. CTA, through Mr Hogan, genuinely believed that CTA could be asked by the appellants to leave the premises, as he stated in his 8 December 2011 email; and

5. CTA, through Mr Hogan, did not believe that the appellants were bound to give CTA a lease.

219. The line of attack in ground 1, like grounds 6 and 8, is directed to the reasonableness of the assumption and reliance on it by CTA. In addition to the reasons given above for rejecting grounds 6 and 8, the following observations can be made in relation to ground 1.

220. First, the finding stated in ground 1(a) does not accurately reflect his Honour’s finding concerning Mr Doueihi’s authority. His Honour found that Mr Doueihi did not have authority of the other co-owners to enter into a contract or an agreement for lease with CTA, however, as already indicated, his Honour found that the other co-owners allowed and expected Mr Doueihi to act for them in negotiating with Mr Hogan: at [141].

221. Secondly, the finding in ground 1(b) can be accepted in the terms stated but, importantly, his Honour also found that the other co-owners assumed that CTA could occupy the site on a long-term basis, provided that Mr Hogan had cleared the details of CTA’s occupation with Mr Doueihi: at [121]. They had left it to Mr Doueihi to discuss terms with Mr Hogan, and Mr Doueihi had encouraged Mr Hogan to assume that CTA could occupy its area for at least five years with an option for a further five years: at [93].

222. The reliance placed by the appellants on the other co-owners not being told of the precise term of five-plus-five-years, is answered by his Honour’s finding that the co-owners are fixed with Mr Doueihi’s knowledge as to Mr Hogan’s assumption of a right to a five-plus-five-year term and Mr Doueihi’s acquiescence in that: at [141].

223. Thirdly, the finding in ground 1(c) - that there was never any concluded agreement or intention to enter into legal relations between CTA (through Mr Hogan) and any of the appellants - misses the point of the proprietary estoppel claim. It is well-accepted that equitable proprietary estoppel can be established notwithstanding that the expectation created by the defendants’ conduct contains elements that would not be sufficiently certain to amount to a valid contract or is formed on the basis of vague assurances: DHJPM v Blackthorn at [54].

224. The appellants are not assisted by the lack of any concluded agreement or intention to enter into ‘a particular legal relationship’. Indeed, it was the informality of the arrangements between the parties in the present case which in all the circumstances justified the intervention of equity. That the other co-owners did not concern themselves with the precise terms of CTA’s occupation of the premises, but left it to Mr Doueihi to negotiate the terms with Mr Hogan, and did not wish to enter into a formal lease due to family convention, does not mean that it was not unconscionable for them to later refuse to honour the arrangements negotiated on their behalf by Mr Doueihi.

225. Fourthly, the finding in ground 1(d) - that Mr Hogan believed at the time of his 8 December 2011 email that “as things then stood” the appellants could ask CTA to leave the premises - has been dealt with above. That finding is not to be taken out of context. At the time of that email the relationship between Mr Hogan and Ms Hogan had fractured and Mr Hogan could no longer rely on the close family connection as a basis of respect for his agreement with Mr Doueihi. That Mr Hogan pressed for a formal lease after the appellants had resiled from the assumption they had encouraged, merely reflected his later apprehension, that CTA was exposed to risk and could no longer rely on the honour of the family to respect what had been agreed with Mr Doueihi, in the changed circumstances between the parties.

226. Fifthly, the finding in ground 1(e) - that Mr Hogan did not believe that the appellants were bound to grant CTA the lease he expected - related to what the co-owners were legally obliged to do. It says nothing about the relevant assumption made by Mr Hogan that an interest would be granted to CTA. It provides no answer to CTA’s proprietary estoppel claim.

227. In my view, ground 1 should be rejected.

Conclusion and orders

228. The appeal has failed. There is no reason why costs should not follow the event: UCPR r 42.1. Accordingly, I propose the following orders:

1. appeal dismissed;

2. appellants to pay the respondent’s costs.

229. LEEMING JA: I agree with Gleeson JA.

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Amendments

17 May 2016 - [136] - Giumelli v Giumelli

13 May 2016 - [87] - incomplete

Decision last updated: 17 May 2016